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(H.R. 1728)On the Hensarling of Texas amendment that would have deleted the provisions in the Mortgage Reform and Anti-Predatory Lending Act that make those who either purchase mortgages after they are originated, or package them into securities, liable for deceptive practices engaged in during the original marketing of the mortgage loan (2009 house Roll Call 239)

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(H.R. 1728)On the Hensarling of Texas amendment that would have deleted the provisions in the Mortgage Reform and Anti-Predatory Lending Act that make those who either purchase mortgages after they are originated, or package them into securities, liable for deceptive practices engaged in during the original marketing of the mortgage loan

H.R. This was a vote on an amendment, offered by Rep. Hensarling (R-TX), to H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, The amendment would have deleted the provisions in the legislation that make those who either purchase mortgages after they are originated, or package them into securities, liable for deceptive practices engaged in during the original marketing of the mortgage loan. H.R. 1728 was designed to help ensure that lenders only make loans that borrowers will be able to repay. The report of the House Financial Services Committee, in which the bill was developed, said the legislation would “curb lending that had been a major factor in the highest home foreclosure rate in the nation in 25 years . . . It would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.”

Rep. Hensarling began his remarks in support of his amendment by agreeing that there is a need for what he termed “effective policing of fraud and misrepresentation” in the origination of mortgages. He went on to present arguments as to why H.R. 1728 does not go about meeting that need. Hensarling said “one particularly bad and onerous aspect of this legislation is something called assignee liability. What this means is that once the mortgage is entered into, that those who securitize the mortgage, those who may invest in the mortgage, that all of a sudden new legal liability will attach to them as well.” He also complained that the bill introduces this new legal liability if it is shown that the loan was extended without giving the borrower a “net tangible benefit'', but does not make clear what that term means.

Hensarling also made the point that borrowers who take out loans they cannot repay should also bear some personal responsibility. He further argued that, although the bill also penalizes lenders giving loans to borrowers who do not have a “reasonable ability to pay”, it does not make clear what standard means. Hensarling concluded that the bill “is a plaintiff's lawyer's dream, and so we will have an explosion of liability exposure.”

Rep.Watt (D-NC) opposed the amendment. He argued that it is not enough just to provide formal disclosure rules, without also penalizing those who engage in fraudulent practices or extend loans they know cannot be repaid. Watt argued that “everybody who is in default now got full disclosures of what the terms of their loans were. And they were ineffective to prevent the kind of predatory lending and policies that this bill addresses.” He said current disclosure law “is not enough to protect (borrowers) any more than disclosure that a doctor may not be the best doctor in America is going to stop people from going to the doctor.”

Hensarling responded that the impact of the restrictions in the bill, which his amendment sought to remove, is to hurt potential borrowers who “still ought to have an opportunity to realize their American Dream, and we ought to quit protecting them out of their homes.” Watt answered that, in developing the bill, the Financial Services Committee “walked a delicate balance between protecting consumers and protecting the availability of funds.” He went on to say that “the balance that (Rep. Hensarling) would have us address in his amendment would say “no assignee or securitizer of a residential mortgage loan shall be liable under this subsection.” Watt claimed the result would be lenders continuing to make inappropriate loans and assigning or selling them to companies that buy the loans because they do not have any liability for the fraudulent practices.

The amendment failed on a vote of 171-252. One hundred and sixty-seven Republicans and four Democrats voted “aye”. Two hundred and forty-six Democrats and six Republicans voted “nay”. As a result, the amendment was defeated and the language creating liability for assignees and securitizers of loans originated using fraudulent practices was retained in the Mortgage Reform and Anti-Predatory Lending Act.